WASHINGTON–Bankers’ associations from 52 states have sent a letter to Sen. Orrin Hatch (R-UT) arguing taxpayers should no longer “subsidize” the nation’s largest credit unions.
The letter to Hatch follows another letter Hatch himself sent to NCUA in which he questioned the validity of credit unions' federal tax exemption. The letter calls on Hatch, who is close to Utah’s bankers and who plans to retire from the Senate, to revisit the tax exemption this year.
“There is no reason why the largest credit unions, which act and look just like the taxpaying banks they compete with, should be completely free of income taxation,” the associations wrote in the letter. “This creates a market distortion where the tax code effectively subsidizes one financial services entity (the largest credit unions) over another (the smaller community bank).”
The letter also points to a recent study by the Tax Foundation that suggests few of the benefits from the tax exemption are passed onto credit union members. Instead—and in language similar to that Hatch used in his letter to NCUA–the bankers’ group argue some of the largest credit unions have instead used their tax benefit to finance executive compensation packages, build or buy multi-million-dollar headquarters facilities and purchase naming rights to stadiums and bowl games. The letter states such investments should “not be tolerated by entities that are supposedly ‘not-for-profit’.”
“Lawmakers,” the letter states, have “missed an opportunity to reform the outdated and increasingly wasteful tax advantages enjoyed by the most aggressive credit unions.”
Among other claims made in the bankers’ letter:
- “The number of credit unions with more than $1 billion in assets has more than doubled in the past decade. These nearly 300 credit unions represent just 5% of America’s nearly 6,000 credit unions, but enjoy 75% of the tax subsidy.”
- The letter urges Hatch to “remember why Congress exempted credit unions from federal income taxes in the first place: a targeted mission to provide small-dollar loans to consumers of modest means, with access limited to small groups of people.
- “While credit unions were created to serve people of modest means, the benefits of the tax subsidy skew to affluent consumers; the Prochnow Foundation found that 61% of the consumer benefits go to households with incomes over $95,000, while the National Community Reinvestment Coalition found credit unions lag banks in making loans to low- and moderate-income communities.”
- "Many of the benefits are never seen by consumers at all,” and instead “credit unions have leveraged their tax subsidy to pay their CEOs millions, such as the $9.3 million paid to Eastman Credit Union of Kingsport, Tenn., a community whose median household income is $37,465; build or buy large headquarters buildings, such as PenFed Credit Union’s $164-million building in Tysons Corner, Va., buy naming rights to stadiums and bowl games, such as Golden 1 Credit Union’s $120 million spent to get its banner on the arena housing the Sacramento Kings.”
“Credit unions still maintain their tax status because, as Senator Tom Coburn pointed out in 2014, of ‘the momentum of the status quo’,” the letter states. “The status quo must change.”
A full copy of the bankers’ letter can be found in CUToday.info’s The Gov here.